464 P.3d 821
Haw.2020Background
- In 2008 the Monalims borrowed ~ $1.025M from HawaiiUSA secured by a Ko Olina condominium; they defaulted and HawaiiUSA obtained a foreclosure judgment in Aug. 2011.
- The property sold at auction Oct. 24, 2011 for $760,000 (commissioner recommended confirmation); the foreclosure judgment allowed HawaiiUSA to later request a deficiency judgment.
- HawaiiUSA waited >4 years and filed for a deficiency judgment on Jan. 12, 2016 seeking roughly $493,282 (including attorneys’ fees); the Monalims opposed on laches and on the calculation method.
- The circuit court awarded the deficiency but denied interest for the delay; it did not make findings on laches or hold a hearing on fair market value.
- The ICA affirmed, holding res judicata precluded the Monalims’ challenge to the deficiency-calculation method and that they had not shown prejudice from the delay.
- The Hawaiʻi Supreme Court vacated the judgments, held res judicata did not bar the calculation challenge, remanded for laches findings, and adopted the majority rule (Restatement §8.4) on deficiency calculation prospectively only.
Issues
| Issue | HawaiiUSA (plaintiff/mortgagee) argument | Monalims (defendants) argument | Held |
|---|---|---|---|
| Whether res judicata barred Monalims from challenging the method used to calculate the deficiency | Monalims should have raised the calculation method in their earlier appeal from the foreclosure judgment; issue was forfeited | The calculation concerns the amount of the deficiency (a separate, appealable matter) and may be raised in the deficiency-judgment appeal | Res judicata did not bar the Monalims; the calculation issue relates to the amount and is separately appealable under HRS §667-51(a)(3) |
| Whether HawaiiUSA’s >4-year delay to seek a deficiency judgment is barred by laches | Delay was timely (within judgment-collection period) and caused no unfair prejudice; court may still exercise remedies (e.g., deny interest) | Delay was unreasonable and prejudicial: Monalims changed position (did not file bankruptcy, rebuilt lives) in reliance on no deficiency motion | Circuit court failed to make findings on laches; Supreme Court vacated judgment and remanded for the trial court to evaluate both unreasonable delay and prejudice |
| Proper method to calculate a deficiency judgment (foreclosure sale price vs. fair market value) | Traditional approach (sale price is conclusive unless sale shocks conscience) is adequate; no automatic fair-value inquiry required | Traditional rule can produce double-loss or mortgagee windfall; adopt majority rule (greater of fair market value or sale price) and allow evidentiary fair-value hearing | Court adopts Restatement (Third) §8.4 (majority rule): defendant may request determination of fair market value and offset the deficiency by the greater of fair market value or sale price |
| Retroactivity of newly adopted rule | Not argued uniformly; practical concerns about unsettled final judgments | Applying rule retroactively would upset reliance and finality | Adoption of the majority rule is prospective only: applies to deficiency judgments first entered after this opinion’s date |
Key Cases Cited
- Mortg. Elec. Registration Sys., Inc. v. Wise, 130 Hawaiʻi 11, 304 P.3d 1192 (Haw. 2013) (foreclosure proceedings are bifurcated for res judicata/appeal purposes)
- Herrmann v. Herrmann, 138 Hawaiʻi 144, 378 P.3d 860 (Haw. 2016) (outlines laches elements and need for trial-court findings on prejudice)
- Wodehouse v. Hawaiian Trust Co., 32 Haw. 835 (Haw. Terr. 1933) (court may refuse to confirm a sale if bid is so inadequate as to shock the conscience)
- Beneficial Hawaii, Inc. v. Kida, 96 Hawaiʻi 289, 30 P.3d 895 (Haw. 2001) (foreclosure is equitable and courts may mold relief to do justice)
- Trustees v. Galleria P'ship, 780 P.2d 608 (Mont. 1989) (Montana supreme court used equity to require fair-market-value inquiry for deficiency)
- Sostaric v. Marshall, 766 S.E.2d 396 (W. Va. 2014) (adopted majority rule: greater of fair market value or sale price to calculate deficiency)
- Bank of Honolulu v. Anderson, 3 Haw. App. 545, 654 P.2d 1370 (Haw. Ct. App. 1982) (deficiency judgment is rendered after sale; statute permits court discretion to assess amount due)